West One predicts bridging will pass £2bn forecast

Robyn Hall

August 23, 2013

In the second quarter industry gross bridging lending was £492m with an annualised rate of £1.97bn. In the twelve months to June gross bridging lending was £1.76bn.

Duncan Kreeger, director at West One Loans, said: “Our £2bn prediction for this year was labelled out of date when mortgage lending recovered slightly.

“Now it looks like an underestimate. That’s because of the different culture in the bridging industry we’re not afraid of the projects that deserve real investment.”

Figures from the index showed that annual lending has grown by 9% since the first quarter and has grown 39% since the second quarter of 2012.

West One have forecast that at the average rate of the last 12 months industry gross lending will total £2.1bn in 2013.

Kreeger added: “Rather than maintaining a dusty balance sheet of long-term mortgages the bridging industry is financing real, practical and dynamic projects.

“Where mainstream lenders are still too afraid to tread and find themselves held back by capital adequacy rules this industry is giving developers, landlords and small businesses the loans they need.”

The amount lent has grown on the back of both higher volumes and larger loans.

Loan volumes grew by 10.8% between the first and second quarters and on an annual basis this puts the number of loans advanced by the industry 30.4% higher than the number of loans in quarter two 2012.

Meanwhile the size of the average bridging loan was £405,000 in quarter two compared to £397,000 three months earlier.

This represents quarterly growth of 2% leaving loans in quarter two 10.1% larger than in the same three months of 2012.

Loan-to-value ratios have continued to grow. The average LTV in the second quarter was 46.4% up slightly from 46.2% in quarter one.

But this still leaves average LTVs just below the 46.5% seen in quarter two last year.

Kreeger added: “Security allows the reach and ambition that the bridging industry exists to provide. But more reach and more ambition is always welcome when the circumstances are suitable.

“Higher LTVs are a vote of confidence in our borrowers their finances and their businesses. And the latest pick up in loan ratios matches the long-term trend to more of that optimism.”

Interest rates in the second quarter were slightly more competitive. The average interest rate over the three month period was 1.18%, compared to 1.24% in the first three months of the year.

On an annual basis rates are also marginally lower. In the year to June the average interest rate on a bridging loan was 1.27%, slightly lower than an average of 1.33% in the preceding twelve months.

Mark Abrahams, director at West One Loans, said: “Greater competition is expanding the reach and effectiveness of the bridging industry. That’s good news for borrowers who need finance quickly at the best rate. But it’s also good news for lenders who want to reinvest quickly, with a wider choice of potential deals.”

Returns for investors in the bridging industry remained around six times those available from traditional ten year government bonds.

This is typical of the comparison with other asset classes, for example, alternative equity investments.

Research by West One Loans showed bridging loan investments beating yields in the FTSE Alternative Investment Market by a factor of ten.

Abrahams added: “It seems bonds of all types are now more volatile than previously imagined. By any measure the bond markets are far from the safe bet they used to be.

“And meanwhile equities seem to go into reverse when good economic news comes out hardly a good investment during a recovery.”

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